2 LICs that could help you survive the next downturn

Markets have been quite friendly for almost a decade now. Most of us realise this doesn’t last forever. I’m not saying we’re about to have a crash, but I am saying we’re probably closer than we have been to the next downturn (by definition that must be the case). When markets eventually do take a tumble, I only want to be holding quality companies that have a strong chance of making it out the other side. No speculative stocks or pie-in-the-sky business concepts for my portfolio! Instead, I want companies that will simply keep plodding along and return cash to…

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Markets have been quite friendly for almost a decade now. Most of us realise this doesn’t last forever.

I’m not saying we’re about to have a crash, but I am saying we’re probably closer than we have been to the next downturn (by definition that must be the case).

When markets eventually do take a tumble, I only want to be holding quality companies that have a strong chance of making it out the other side. No speculative stocks or pie-in-the-sky business concepts for my portfolio!

Instead, I want companies that will simply keep plodding along and return cash to shareholders in the form of steady dividend payments.

The following LICs have proven themselves to be good stewards of shareholder’s capital and provide a rock-solid dividend stream when the economy is sailing through choppy waters…

The largest LIC on the Aussie market, AFI manages a portfolio of around $7 billion and pays a very reliable and growing dividend to shareholders, which it sources from its portfolio of 100 businesses.

During the GFC, the company suffered large share price falls with the market. But AFI was actually able to keep paying the same dividend, so shareholders who simply focused on their dividend stream may have wondered what all the fuss was about.

Whitefield is a much smaller LIC with a market cap of around $400 million. The company holds a portfolio of 160 stocks, focused on the ASX200 Industrials (non-resources). It often goes unnoticed and regularly trades at a discount. But despite its lack of popularity, Whitefield has provided an extremely reliable dividend over the years.

During the GFC it was able to keep its dividend steady and has recently begun increasing it again. In fact, the company has not cut its dividend in over 20 years.

Whitefield currently trades on a yield of 3.9%, or 5.6% grossed-up.

Foolish takeaway

When the market is rising and there are quick capital gains on offer, dividend-paying shares tend to fall out of favour. But as the market takes a tumble, the attractiveness of a reliable dividend becomes apparent once again.

I’m betting on these LICs to keep investing prudently and provide shareholders with a dependable fully-franked dividend during the next market downturn.

It's been a nail-biter of a reporting season here in the first half of 2018.

But the real action, in my opinion, is what companies are doing with dividends.

What does this mean for you? Well there is one stock I've found that could very well turn out to be THE best buy of 2018. And while there's no such thing as a 'sure thing' when it comes to investing - this ripper might come as close as I've ever seen.

Motley Fool contributor Dave Gow owns shares of Australian Foundation Investment Company Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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